Poverty Projections for Pakistan : Nowcasting and Forecasting

In the fiscal year 2018/19, 21.9 percent of the population in Pakistan lived below the national poverty line. Since then, the COVID-19 pandemic, devastating floods in 2022, and a macro-fiscal crisis with record inflation have profoundly impacted economic activity and income-earning opportunities. The absence of a new household survey limits the ability to ascertain the implications of these different shocks on household welfare and poverty. Up-to-date welfare information is crucial for formulating appropriate policy responses to crises that directly affect households’ socioeconomic well-being. To overcome the lack of current data, this paper proposes a microsimulation tool that combines microdata from the latest national household survey with high-frequency macro indicators to produce nowcasts and forecasts of poverty. The tool models household consumption by using individual and household characteristics and accounts for changes in labor markets, inflation, social transfers, and remittances. The results account for household-specific inflation rates, which reflect systematic variation in household consumption patterns and sector-specific growth rates. Using the preferred specification, the findings suggest that in the fiscal year 2022/23, the poverty rate stood at 25.3 percent, an increase of seven percentage points compared to the 2021/22 period, and representing about 13 million additional people falling into poverty. Moreover, in addition to the projected increase in poverty, poor households face disproportionately higher welfare losses and get pushed deeper into poverty.